Exhibit 10.3
PRE-2005 SUPPLEMENTAL RETIREMENT PLAN AGREEMENT
This sets forth an amendment and restatement of the Supplemental
Retirement Plan Agreement made effective as of March 1, 2004 between (i)
COMMUNITY BANK SYSTEM, INC., a Delaware corporation and registered bank holding
company, and COMMUNITY BANK, N.A., a national banking association, both having
offices located in Dewitt, New York (collectively, the "Employer"), and (ii)
SANFORD A. BELDEN, an individual currently residing at 9 Lynacres Boulevard,
Fayetteville, New York ("Employee"). This amended and restated Agreement
supersedes the March 1, 2004 version of this Agreement, and is entered into
pursuant to paragraph 4(d) of the Employment Agreement between the parties,
effective as of March 1, 2004 and as amended ("Employment Agreement"). This
amended and restated Agreement is effective as of December 31, 2004.
This amended and restated Agreement is entered into by the parties in
accordance with guidance provided by the Internal Revenue Service in Internal
Revenue Service Notice 2005-1. The intent of this amended and restated Agreement
is to preserve supplemental retirement benefits earned and vested under this
Agreement (and prior versions of this Agreement) through December 31, 2004 and
to stop future accruals under this Agreement as of December 31, 2004.
Supplemental retirement benefits earned and vested through December 31, 2004
will be treated as not subject to the requirements of Internal Revenue Code
Section 409A. Supplemental retirement benefits earned after December 31, 2004,
which benefits will be subject to Internal Revenue Code Section 409A, shall be
determined and governed by the separate Post-2004 Supplemental Retirement Plan
Agreement between the parties.
WITNESSETH
IN CONSIDERATION of the promises and mutual agreements and covenants
contained herein, and other good and valuable consideration, the parties agree
as follows:
1. Supplemental Retirement Benefit.
(a) Employer shall pay Employee an annual supplemental retirement
benefit equal to the product of (i) 5% times Employee's number of years of
service, considering only the Employee's first 10 years of service, plus 2%
times Employee's number of years of service in excess of ten years, times (ii)
Employee's final average compensation, with the product of (i) times (ii)
reduced by Employee's other retirement benefits. Notwithstanding the foregoing,
except in the event of Employee's voluntary termination of employment prior to
July 1, 2006, the product of (i) times (ii) above shall not be less than the
product that would be derived if Employee remained employed pursuant to the
Employment Agreement through December 31, 2007 and received the Base Salary
(including increases) and Management Incentive Plan payments (assuming a minimum
50 percent incentive payment under Employer's Management Incentive Plan)
described in the Employment Agreement. Subject to the adjustments described in
paragraph 1(h), the benefit described in this paragraph 1(a) initially shall be
expressed as a single life annuity (payable for Employee's life) commencing as
of the date determined pursuant to paragraph 1(g).
(b) For purposes of this paragraph 1, and subject to paragraph 2,
"years of service" shall be credited to Employee in the same manner as years of
service are credited to Employee under the Community Bank System, Inc. Pension
Plan, as amended through
-2-
December 31, 2004 ("Pension Plan"); and no more than 15 years of service will be
taken into account under paragraphs 1 and 2.
(c) For purposes of this paragraph 1, and except as provided in the
second sentence of paragraph 1(a) and in paragraph 2(a)(iii), Employee's "final
average compensation" shall be the annual average of Employee's Base Salary (as
defined in the Employment Agreement) and cash incentive payment awarded during
the five consecutive calendar years preceding Employee's termination.
(d) For purposes of this paragraph 1, Employee's "other retirement
benefits" shall mean the sum of
(i) the annual benefit earned by Employee pursuant to the
Pension Plan, plus
(ii) 50 percent of the estimated annual benefit payable to
Employee pursuant to the Federal Social Security Act, plus
(iii) the annual benefit that could be provided by Employer
contributions (other than elective deferrals) made on Employee's behalf under
(A) the Community Bank System, Inc. 401(k) Employee Stock Ownership Plan, and
(B) the Deferred Compensation Plan for Certain Executive Employees of Community
Bank System, Inc., plus earnings on such Employer contributions under (A) and
(B) at an assumed rate of 8% per year, if such contributions (as adjusted) were
converted to a single life annuity benefit payable at the same time as the
benefit paid under this paragraph 1, using the factors applied to determine
actuarial equivalents under the Pension Plan at the time payments begin under
this paragraph 1.
-3-
(e) For purposes of paragraph 1(d)(ii), Employee's Social Security
Benefit ("Benefit") will be valued by the actual Benefit Employee receives or is
qualified to receive at the time Employee elects to receive the supplemental
retirement benefit, or if Employee has not yet qualified for the Benefit, the
Benefit will be valued by the maximum benefit available to a then 62 year old
individual.
(f) For the purposes of paragraph 1(d)(i), Employee's Pension Plan
benefit will be Employee's accrued benefit under the Pension Plan, determined as
of the earlier of (i) the date Employee begins to receive such Pension Plan
benefit, or (ii) the date Employee begins to receive the supplemental retirement
plan benefit, expressed (in either case) in the form of a single life annuity
(payable for Employee's life) commencing as of the date determined pursuant to
paragraph 1(g). In the event payments of supplemental retirement benefits
commence before payments of Employee's Pension Plan benefit commence, the
supplemental retirement benefit shall be adjusted (if necessary) to reflect any
difference between the Pension Plan benefit calculated pursuant to the preceding
sentence and the actual benefit paid to Employee pursuant to the Pension Plan.
(g) The supplemental retirement benefit described in paragraph 1
shall be payable commencing on the first day of the month following the later of
(i) Employee's receipt of all payments due under the terms of his Employment
Agreement, or (ii) termination of employment as an employee of Employer.
(h) The supplemental retirement benefit described in this paragraph
1 shall be paid in the form of an actuarially reduced Joint and 100% Survivor
benefit (using the factors applied to determine actuarial equivalents under the
Pension Plan at the time payments begin),
-4-
with Employee's spouse as survivor annuitant; provided, however, that, if
Employee or his beneficiaries shall receive payment of Employee's benefit under
the Pension Plan prior to Employee's attainment of age 62, then the supplement
retirement benefit under this paragraph 1 shall be subject to the same early
retirement reduction, using the factors applied to determine early retirement
benefits under the Pension Plan at the time payments begin.
Notwithstanding the foregoing, if Employee dies prior to commencing
receipt of payments under this paragraph 1, Employee's surviving spouse shall
receive an actuarially reduced 100% survivor benefit determined as if Employee
retired on the day prior to his death and immediately commenced receipt of
payments under both this paragraph 1 (including any adjustment required by the
second sentence of paragraph 1(a)) and the Pension Plan in the form of an
actuarially reduced Joint and 100% Survivor benefit with his spouse as survivor
annuitant. If Employee has no spouse at the time of Employee's death, no
survivor benefits shall be paid pursuant to this paragraph 1.
(i) Employer shall establish a "grantor trust" (as that term is
defined in Internal Revenue Code Section 671) to aid it in the accumulation and
payment of the supplemental retirement benefit described in this paragraph 1;
provided that the trust shall be established with the intention that the
creation and funding of the trust shall not result in the recognition of gross
income by Employee of any amount credited under the trust prior to the date the
amount is paid or made available. Assets of the trust, and any other assets set
aside by Employer to satisfy its obligations under this Agreement, shall remain
at all times subject to the claims of Employer's general creditors. Employee and
his beneficiaries shall not have any rights under this paragraph 1 that are
senior to the claims of general unsecured creditors of Employer.
-5-
Notwithstanding any other term or provision of this Agreement or the trust,
within ten business days following Employee's termination of employment with
Employer due to Employee's retirement (including Employee's voluntary early
retirement), disability or death, or, if earlier, immediately prior to the
effective date of a "Change of Control" (as defined in the Employment
Agreement), Employer shall fully fund the trust (using the same actuarial
assumptions used to establish funding in the Pension Plan) for all benefits
earned pursuant to this Agreement through the date of Employee's termination of
employment or the effective date of the Change of Control, as applicable.
(j) The right to receive the supplemental retirement benefit
described in this paragraph 1 shall not be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge or encumbrance, nor
subject to attachment, garnishment, levy, execution or other legal or equitable
process for the debts, contracts or liabilities of Employee or his
beneficiaries.
(k) Notwithstanding the foregoing of this paragraph 1 or any other
provision of this Agreement, Employee's supplemental retirement benefit
determined pursuant to this Agreement shall not be greater than the benefit
determined as of December 31, 2004 in accordance with Internal Revenue Service
Notice 2005-1 (Q&A 17). Employee shall not earn supplement retirement benefits
pursuant to this Agreement after December 31, 2004. Supplemental retirement
benefits earned by Employee after December 31, 2004 shall be determined and
governed by the separate Post-2004 Supplemental Retirement Plan Agreement
between the parties. In no event will retirement benefits of any type payable to
Employee be duplicated.
-6-
2. Change of Control
(a) If Employee's employment with Employer shall cease for any
reason, including Employee's voluntary termination for "good reason," but not
including Employee's termination for "cause" or Employee's voluntary termination
without "good reason," within 2 years following a "Change of Control", (as those
quoted terms are defined in the Employment Agreement), Employer shall:
(i) Credit Employee under this Agreement with the greater of 3
years of service or the years of service Employee is retained as a consultant
under the terms of paragraph 6 of the Employment Agreement for purposes of
determining Employee's supplemental retirement benefit described in paragraph 1;
and
(ii) Credit Employee under this Agreement with two additional
years of service for purposes of determining Employee's supplemental retirement
benefit described in paragraph 1; and
(iii) Determine Employee's "final average compensation" under
paragraph 1(c) by considering the years of service Employee is retained as a
consultant under the terms of the Employment Agreement as service that precedes
Employee's termination and considering amounts paid to Employee during that
period as Base Salary and cash incentive payments to Employee.
(b) Subject to paragraph 2(c) below, if any portion of the amounts
paid to, or value received by, Employee following a "Change of Control"
constitutes an "excess parachute payment" within the meaning of Internal Revenue
Code Section 280G, then the parties shall negotiate a restructuring of payment
dates and/or methods (but not payment amounts) to
-7-
minimize or eliminate the application of Internal Revenue Code Section 280G. If
an agreement to restructure payments cannot be reached within 60 days of the
date the first payment is due under this Agreement, then payments shall be made
without restructuring. The amount of any payment shall be increased to the
extent necessary to hold Employee harmless from all income and excise tax
liability attributable to such payment.
(c) Notwithstanding the foregoing of this paragraph 2, if the Board
of Directors of Employer elects to make a single lump sum payment to Employee
pursuant to paragraph 6(a)(vi) of the Employment Agreement, Employer shall pay
all benefits due Employee pursuant to this Agreement in an actuarial equivalent
single lump sum payment within 90 days following a Change of Control and
Employee's termination of employment with Employer. In the event a single lump
sum payment is made pursuant to the foregoing sentence, the amount of the
payment shall be increased to the extent necessary to hold Employee harmless
from all income and excise tax liability attributable to such single lump sum
payment.
3. Construction and Severability.
The invalidity of any one or more provisions of this Agreement or
any part thereof, all of which are inserted conditionally upon their being valid
in law, shall not affect the validity of any other provisions to this Agreement;
and in the event that one or more provisions contained herein shall be invalid,
as determined by a court of competent jurisdiction, this instrument shall be
construed as if such invalid provisions had not been inserted. This Agreement
shall be interpreted and applied in all circumstances in a manner that is
consistent with the intent of the parties that the amount earned and vested
pursuant to this Agreement
-8-
through December 31, 2004 shall not be subject to the requirements of Internal
Revenue Code Section 409A.
4. Governing Law. This Agreement was executed and delivered in New York
and shall be construed and governed in accordance with the laws of the State of
New York.
5. Assignability and Successors. This Agreement may not be assigned by
Employee or Employer, except that this Agreement shall be binding upon and shall
inure to the benefit of the successor of Employer through merger or corporate
reorganization.
6. Miscellaneous. This Agreement constitutes the entire understanding and
agreement between the parties with respect to the subject matter hereof and
shall supersede all prior understandings and agreements regarding supplemental
retirement benefits earned through December 31, 2004, including the March 1,
2004 version of this Agreement. This Agreement cannot be amended, modified, or
supplemented in any respect, except by a subsequent written agreement entered
into by the parties hereto.
7. Counterparts. This Agreement may be executed in counterparts (each of
which need not be executed by each of the parties), which together shall
constitute one and the same instrument.
8. Jurisdiction, Venue and Fees. The jurisdiction of any proceeding
between the parties arising out of, or with respect to, this Agreement shall be
in a court of competent jurisdiction in New York State, and venue shall be in
Onondaga County. Each party shall be subject to the personal jurisdiction of the
courts of New York State. If Employee is a party in a proceeding to collect
payments due pursuant to this Agreement and prevails in collecting payments due
in the proceeding or settlement of the proceeding, Employer shall reimburse
-9-
Employee for reasonable attorneys' fees incurred by Employee in connection with
such proceeding.
The foregoing is established by the following signatures of the
parties.
COMMUNITY BANK SYSTEM, INC.
By: /s/ James A. Gabriel
-----------------------------
Its: Chairman
Date: February 15, 2005
COMMUNITY BANK, N.A.
By: /s/ James A. Gabriel
-----------------------------
Its: Chairman
Date: February 15, 2005
/s/ Sanford A. Belden
---------------------------------
SANFORD A. BELDEN
Date: February 15, 2005
-10-